Definitions

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

The most commonly used UCA terms are explained here.

A comparison of some of the UCA terms with those used in the former depreciation rules is provided in the table below:

Former depreciation rules

UCA

Plant

Depreciating asset

Own

Hold

Cost

First and second elements of cost

Luxury car limit

Car limit

Income-producing use

Taxable purpose

Depreciation

Decline in value

Undeducted cost

Adjustable value

Adjustable value - A depreciating asset's adjustable value at a particular time is its cost (first and second elements) less any decline in value up to that time.

The opening adjustable value of an asset for an income year is generally the same as its adjustable value at the end of the previous income year.

Balancing adjustment amount - If an asset's termination value is greater than its adjustable value at the time of a balancing adjustment event, the excess is generally an assessable balancing adjustment amount.

If the termination value is less than the adjustable value, the difference is generally a deductible balancing adjustment amount.

Balancing adjustment event - Generally, a balancing adjustment event occurs for a depreciating asset if you stop holding it (for example, if you sell it) or you stop using it and you expect never to use it again.

Car limit - If the first element of cost of a car exceeds the car limit for the financial year in which you start to hold it, that first element of cost is generally reduced to the car limit. The car limit for 2004-05 is $57,009.

Decline in value - Deductions for the cost of a depreciating asset are based on the decline in value.

For most depreciating assets, you have the choice of two methods to work out the decline in value of a depreciating asset: the prime cost method or the diminishing value method - see Methods of working out decline in value.

Depreciating asset - A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used.

Effective life - Generally, the effective life of a depreciating asset is how long it can be used by any entity for a taxable purpose or for the purpose of producing exempt income or non-assessable non-exempt income:

having regard to the wear and tear from your expected circumstances of use

assuming it will be maintained in reasonably good order and condition, and

having regard to the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.

First element of cost - The first element of cost is, broadly, the amount paid (money and/or the market value of property given) or the amount taken to have been paid to hold the asset.

Second element of cost - The second element of cost is, broadly, the amount paid (money and/or the market value of property given) or the amount taken to have been paid to bring the asset to its present condition and location at any time, such as a cost of improving the asset.

Start time - A depreciating asset's start time is generally when you first use it (or install it ready for use) for any purpose, including a private purpose.

Taxable purpose - A taxable purpose is the purpose of producing assessable income, the purpose of exploration or prospecting, the purpose of mining site rehabilitation, or environmental protection activities.

Termination value - Generally, the termination value is what you receive or are taken to receive for an asset as a result of a balancing adjustment event, such as the proceeds from selling an asset.

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